London-based miner Gem Diamonds recently rocked the diamond world with the announcement of its latest remarkable recovery from the Letšeng mine in the Kingdom of Lesotho: a 910-carat, D color Type IIa diamond. It is the fifth-largest gem quality diamond ever recovered and is of the highest quality. The Diamond Loupe had the opportunity to sit down with Gem Diamonds CEO Clifford Elphick and Commercial Director Glenn Turner at the Gem Diamonds office in Antwerp. (see a photo of the diamond in annex below)
The Diamond Loupe (DL): Congratulations on your historic recovery. I understand it is already here in Antwerp.
Clifford Elphick (CE): Yes, we are here in Antwerp looking at the big diamond and making some decisions. It’s hot off the press. It arrived in Antwerp last Tuesday 16 January. It was recovered at the mine the Friday before that, and left Lesotho Monday afternoon, making the evening flight across to Europe before arriving in Antwerp. The Diamond Office is very efficient, I must say. Extremely efficient. It was in acid boiling on Tuesday evening, which is very quick. You have to be quick, because something of that value and iconic status cannot be hanging around too long. You want it here in Antwerp, secure under lock and key, with all the security in this street. It worked out perfectly.
DL: What does the recovery of this type of diamond mean for the company?
CE: Our company, and more particularly the Letšeng mine, is associated with the highest quality of diamonds, and big diamonds. That is the nature of that ore body. It is an incredibly low-grade ore body – 1.6 to 2 carats per 100 tons – so we are talking a recovery rate of maybe three parts per billion. As one can imagine, the only way such a ratio works is if the value of those few number of parts is extremely valuable.
On average, we recover nine to eleven +100-carat stones per year, so maybe once a month. It does not work like a Swiss clock, mind you, but January has started off extraordinarily well, in that we have recovered four of these special diamonds now - actually in the space of about two weeks. Needless to say, we are going through a very good patch at the moment. The really interesting part is that there are two kimberlite pipes at Letšeng – the main pipe and the smaller satellite pipe. Traditionally, the world has thought our best diamonds come from the smaller pipe. But we are pretty certain that this 910-carat stone came from the main pipe. This is a very important point, as far as we are concerned.
It is very good to recover one of the largest stones ever recovered, that goes without saying. The frequency of what has been happening is also very good. But the other point I wish to emphasize, which is lost on many people, is the fact that it comes from the main pipe’s normal run-of-mine production. The process was nothing out of the ordinary. We are not hitting some particularly sweet spot. We just recovered it. Those are three very important points.
DL: Gem Diamonds has been recovering large diamonds for a long time now (since 2004). Does the historic nature of such a find do something to you personally?
CE: It does. I was fortunate enough to work at De Beers, as did Glenn (Turner). We were part of the greatest diamond mining and selling company that existed. As a result of that, and in my case particularly, because I worked for the Oppenheimer family, I had access to the inner recesses of De Beers, and to the large diamonds that emerged along with all the others. Both of us have that background, as do many people in our company. We are not some tiny start up that has no knowledge of this and just got lucky. That’s our pedigree. But I have to tell you that recovering 400, 500, 600 carat stones, and now this diamond, is hugely significant in our lives. And it didn’t happen that often at De Beers. For a small company such as ours, to be in this particular zone is extremely interesting, and it is great fun to be a part of. The historical significance is definitely not lost on us.
Glenn flew over from London to come and join me in Antwerp to see the stone, and to get an idea of exactly what the polished will look like coming out. We are starting to get a view on the value. We are also starting to develop our thoughts in respect of how it is going to be sold. All of these things are a wonderful part of the business. Mining and getting ore bodies to deliver is very interesting, but this has much greater allure than that part of it.
Glenn and I were also among the first to handle the 603-carat Lesotho Promise, which Laurence Graff bought and polished into the most magnificent piece of jewelry I think exists. Everything D flawless. So, we had that as our yardstick. This is 50% bigger than that - another 300 carats on top of it. It really is impressive. When you have been in the diamond industry for a very long time, like I have, the historic nature of finding a diamond of this quality and magnitude is humbling. These things come across your table maybe once in your lifetime, if you are lucky. The two of us have been lucky it has happened to us twice. We have been able to see some of the world’s largest and most significant diamonds over the last 12-14 years.
Glenn Turner (GT): You ask how it makes one feel personally, and Clifford is exactly right. When you have been involved in the diamond business for as long as many of us have at Gem Diamonds, it’s sort of in your blood. But a very significant thing is the effect it has on our people on the mine. It gives an enormous lift to the people who go up to this very remote part of the world, day in and day out; who put themselves through snow and sunshine and wind for this sort of moment to arrive.
To get four of these amazing diamonds in the space of two weeks is a lift for the people. It’s also a lift for the community around the mine. People tend to forget that we put a tremendous amount into the local community around the mine. When we celebrate the recovery of the diamonds, so too does the community around the mine see the benefit from it, and they have learned to celebrate the recovery of these big stones. There are literally thousands of people whose lives really change when these diamonds are found.
CE: To be specific, over 60% of the revenue from this diamond will flow into the nation of Lesotho’s coffers. That is a big amount. They receive royalties, taxes, dividends, withholding taxes, etc. The second thing is, the mine itself, as a result of its success, employs about 1,450 people, and around 95% are local Lesotho people. Thirdly, we spend, annually, over two billion Basotho Loti, or more than $165 million in our procurement spend, and over 97% of that is spent in the country. We are very proud of the fact that when we recover diamonds, the vast majority of the benefit flows into the country directly. It flows to the employees of our mine, by far the majority of whom are locals, and our procurement spend also goes to local companies, so the GDP of the country benefits.
Selling and valuing a 910-carat diamond
DL: How you will go about marketing the diamond?
CE: We think this diamond is aimed at the industry. People, families and businesses who for decades, and in some cases nearly centuries, have been involved in buying rough diamonds. Those are our customers, and those are the people we would like to give an opportunity to consider this diamond and buy it. Not everybody in the diamond market is able to participate in such a thing, so of course the numbers of people that will be invited to come and consider making a bid will be limited. I do not believe we are going to deviate much from our normal processes. They have proved over time to be open, transparent, fair and competitive. They are good for our partner, the Lesotho Government, and that’s the way we like to do it.
DL: The market will determine the value of the 910-carat stone, but you must have some thoughts on it already, and some recent points of comparison.
CE: No two diamonds are the same. The 800-carat stone [Lucara’s 813-ct Constellation diamond that sold for $63 million/$77,000 per ct. - ed.] was an incredible diamond from a yield perspective. It was a clean stone. The 1,109-ct diamond [Lucara’s Lesedi La Rona that sold for $53 million - ed.] was complicated. Just because it is heavier does not make it more valuable. Here is another stone [picking up Rapaport Magazine with the Sierra Leone ‘Peace Diamond’ on the cover]. It is 709.48 carats, the 14th largest diamond ever found … but look at the color, look at the complications. What did that fetch, $6.3 million? Somehow, the world has gone a bit crazy with this large diamond story. The government of Sierra Leone thought they could get $50 million!
One cannot make a deduction of the value based on the external weight and shape of a diamond. When determining value, you have to ask about the color of the diamond. Is it D color? Is it fluorescent? That is another big factor. What is the yield? Is it Type IIa? Is it flawless material? Are there inclusions? It is very complicated. At the end of the day, what matter is what comes out of it. The polished is what sells. You cannot sell a large rough diamond without a clear understanding of what is going to emerge as the polished. At the end of the day, that is what determines the value. Let me just say we feel good about what we have here.
DL: You have now made a series of discoveries in January. An incredible month. In 2017, you said recoveries were picking up and you expected it to continue. Why did you expect that and why is it happening now?
CE: We have introduced some new technology. XRT [Tomra’s X-ray transmission (XRT) diamond sorting equipment - ed.] is part of our recovery process. It has kind of burst onto the diamond market over the last 4-5 years. We were the pioneers of XRT, testing the first equipment. We ran a trial unit in Johannesburg and it proved to be successful, and then they built a machine. In the course of the last 18 months, all of the big stones that have been recovered have been recovered using XRT. That is one box that can be ticked - there is some new technology involved. We now have three XRT recovery machines in our processes, and they are doing very well. This 910-ct. diamond came out of an XRT machine. That is part of the story.
Add to that the fact that we are incredibly focused on this sort of diamond recovery. This is also part of the answer - we are looking for these stones and trying to recover them, with an added focus on trying to break fewer diamonds and deal with that issue. There is no ‘magic bullet’. I cannot point to one specific thing we are doing differently.
DL: In your Q3 report, you mentioned diamond breakage was an issue and you were making investments to ameliorate that situation.
CE: Yes, but that is not part of this story just yet. Diamonds are basically recovered the same way as gold ores and other precious metals. You drill and blast the rock, load it up, take it to a primary crusher which takes it down to the first size. The first part of mining, breaking down the rock to liberate the material inside it, is essentially the same. And it is a really poor process for recovering diamonds. But unfortunately, a bit like democracy, it’s the best process we know. It is not great, but it’s the best we have. To solve this problem, we are going to have to re-jig this whole process. We have some plans and some technology, and we are working on it. But this is not a one or two-quarter thing. This is a two or three-year process.
DL: Can you tell us about it?
CE: Essentially there are two parts to it. One is: see the diamond in the rock before you crush the rock. The other is, get it out of the rock without using traditional crushing techniques. Because when you crush, you crush the rock, but you crush the diamond as well. That is our thinking and we are on a path, but are nowhere near being able to pull back the red velvet curtain off the machine and say “voila, here is Nirvana. We have changed the world.”
We have identified our problem very clearly. We know the impact it has on us, and we have a sniff of a solution. On breaking the rock and liberating the diamond without crushing it, we have a solution there - we have a pilot plant that has run its tests in Johannesburg; it is on its way down to the mine for on-site testing. That part of it we have already done. We now need to see the diamonds in the rock before they hit a crusher. That is the more complicated and more difficult part. But we are making progress. It’s exciting.
DL: Gem Diamonds share price received a bump with the new recovery. Is this a start to regaining shareholder confidence?
CE: The fact of the matter is, all of us small companies are in the doldrums. I think this in an investment-in the-diamond-industry issue, as opposed to a company-specific issue. Look at all the promising companies, from Petra to Lucara to Firestone to Stornoway to Mountain Province. You name it. The whole sector is having a bad time and has had a bad time for a while now. You have to see things in perspective. There are company-specific issues, but it’s a complicated sector.
DL: Can you pinpoint one thing specifically?
CE: The prices of smaller-end diamonds have fallen significantly, and that’s really the answer. It gets extrapolated to everybody. At the end of the day it is all about price. But Argyle [Rio Tinto’s Argyle mine in Australia, a large producer of small goods - ed.] comes to an end soon, and then all of those diamonds are off the market. That must create some sort of supply issue, a vacuum for other companies to fill.
DL: You mentioned that Gem Diamonds is committed to uplifting the community, and yet some journalists, here in the Belgian press and elsewhere, say that mining companies do not really benefit the local population. What would you say to them?
GT: We touched on this when talking about the community, but am glad you mention it. I feel strongly about our commitment. It is important. For example, we have spent 10 million Maloti - approximately $750,000 - on granting scholarships to deserving students so they can study at universities, either in Lesotho or usually in South Africa. They study engineering, mining, geology, finance, etc. Things that are useful to the mining industry. We have also started an internship on the mine, guaranteeing two years of work, and at the end of that period we tend to give jobs to people on the mine itself. So, there is a wonderful circle from scholarship to internship to full-time employment on the mine. We have now done this for 35 people over the past eight or so years, and that is just one aspect of the benefit people get from that type of program.
I also happen to sit as the Chairman of the Community Development Committee, a subcommittee of the board of Letšeng, and in the last four years, as a direct result of proceeds from diamonds such as this one, we have erected four wool sheds for the shearing of sheep and the export of wool, which never existed before in that part of Lesotho. We have set up a vegetable production project – tunnels in which you can grow vegetables – which has been a great success. And finally, on 22 February, I have the great joy of attending the opening of dairy. There has never been a dairy in the Mokhotlong region of Lesotho. We have built a dairy, we have imported cattle for it, and so for the first time, fresh milk is available to that part of the country. None of that would be possible but for the finding of diamonds such as this. So, if journalists suggest there is no link between this diamond and upliftment in Lesotho, then they are quite wrong.