The search for sustainable gems

Gemfields is working to change an entire industry, one gemstone at a time
The search for sustainable gems
By Thomas Shambler
Mon 19 Sep 2016 09:31 AM

Gemfields is working to change an entire industry, one gemstone at a time

It’s a tale as old as time. Brand searches for gems. Brand find gems. Brand loses $13.5 million owing to poorly constructed strategies and the global financial crisis. Then the brand battles to recover.

Welcome to the journey of Gemfields, founded in 2005 and today the world’s leading supplier of ethically sourced coloured gemstones. Owner of emerald mines in Kagem, Zambia, ruby mines in Montepuez, Mozambique, and interests in gemstone mining and prospecting licenses in Colombia, Ethiopia, Sri Lanka, Madagascar and more, Gemfields has become undeniably profitable.

The brand’s inaugural mixed quality auction in 2014 generated US$33.5 million. An auction later that year brought in US$43.3 million, including the sale of a 40.23 carat stone. A sizeable marketing budget (hitting around US$5 million a year) has seen Mila Kunis become a brand ambassador, while partnerships with everyone from Chopard to Bergdorf Goodman have put the name in the public’s eye.

But it always wasn't this way. Back in 2009, Gemfield's success story very nearly stopped short. “The entire business almost closed down,” says Gemfield’s Chief Operating Officer, Dev Shetty. We’re sat in a dimly lit room in Montepuez, Mozambique, and Shetty is talking passionately through the history of Gemfields. He’s been with the brand for years, seeing both its struggle and its rise.

The problem, Shetty explains, is that there was a strategy of mine-to-market, a vertical integration focus that simply wasn’t profitable. “When you want to contain the whole pipeline, you have to control each segment. To do that you can’t start with millions. You need to start with billions.”

 

When shares hit an all-time low (“We knocked off around US$275 million from the balance sheet,” adds Shetty), Ian Harebottle stepped in as new Chief Executive Officer. Harebottle, then 46, joined as a seasoned gemstone man, the previous boss of blue gemstone producer Tanzanite One. Gemfields’ strategy shifted.

“We decided not to build a vertical integration,” says Shetty. “Our strategy is now mine and market, not mine-to-market. So our focus has been basically to own and specialises in each and every segment we understand. We build expertise behind mining, the science and geology, trading and sorting, and a marketing and auction platform. What we also want to do while achieving this goal is to achieve it in a sustainable manner.”

In an interview with Acquisition International, Harebottle echoed these sentiments. The aims of Gemfields now include becoming the leader in certain coloured gemstones, promoting and repositioning the gemstone industry in terms of the luxury market, providing transparency, offering a consistent supply of gems, and leading the way in operational efficiencies and ethics.

“The company’s direct involvement in each step of the process is unique, and provides discerning customers with the assurance they require of the responsible journey their gemstones have taken from mine to market,” continued Harebottle. “Gemfields has pioneered leading environmental, social and safety standards within the coloured gemstones sector.”

While ‘pioneering’ is a strong word and runs the risk of marketing speak, there are several ways in which Gemfields has indeed changed the playing field of coloured gemstones. First, the brand has worked to create a reliably steady supply of quality graded stones. “Consistency has always been one of the most problematic challenges to the industry,” notes Senior Industry Analyst Russell Shor in a report for GIA, a nonprofit institute with expertise on coloured gemstones. “Usually, when a deposit is discovered, small-scale miners flock to an area while the pickings are relatively easy to find, only to abandon it after the deposit dwindles.” Owing to the sheer size of Gemfields, with over a thousand employees across multiple countries, the brand can retain at least one year’s worth gem inventory. Here, consistency is achieved.

 

Gemfields has also established a grading system. Previously, owing to the haphazard nature of gem mining and the often independent artisanal suppliers at the helm, such a universal approach didn’t exist. “Before we got involved, if you wanted to buy an emerald, you’d go under the bush,” says Shetty. “The seller would come with a plastic bag with all these emeralds, and because he’s a ‘smart guy’, he’d sneak in one [quality] stone amidst all these low- to medium-quality. That’s how it was.”

In response, Gemfields launched a programme inspired by De Beers, one where traceable certified gems would be graded on clarity, cut, carat, character and colour. At TanzaniteOne, Harebottle had done something similar, creating identification reports and pricing guides for tanzanite. “You would not believe the amount of pushback we received from the gem trade,” he noted in an interview with GIA. “We were accused of attempting to commoditise the gem and were told that this kind of control would rob them of their ability to sell the gem to their customers on account of its ‘romance’.”

Yet such a grading programme allows Gemfields to more transparently enter auctions. Buyers know roughly what to expect, and they can in an instant understand the quality of the gem they’re eyeing. “We don’t keep the system secret,” Shetty adds with a smile. “When we don’t sell something, we disclose the price,” which is kept private during the bidding process. “This is important because when the client comes next time, they’ll know the minimum rate for the clarity of a given category.”

Underpinning all of this is Gemfields’ very deliberate focus on sustainability. Part clever marketing, part a seemingly genuine desire to do things ethically, this sustainability focus meets the eco-conscious buying needs of today’s consumers.

In Montepuez, Gemfields’ more recent investment, the group focuses on creating local employment. The workforce is sourced from local villages with an emphasis on training and education. One percent of ruby sales from each auction is allocated to CSR, helping build schools, water boreholes, farming cooperatives (the most recent being a chicken farm managed by local women), and so forth. When I visit Montepuez for this story, I travel through the co-ops with Shetty and other executives from Gemfields.

 

Environmental conservation is achieved through an intense backfilling programme where old pits are refilled and replanted or filled with water and seeded with fish. Financially, Montepuez Ruby Mining (MRM, a company made of 75 percent Gemfields and 25 percent local partner M’Wiriti) pays approximately 20 percent of the corporate tax generated in the Cabo Delgado province.

With the success of the Montepuez and Kagem mines secured, Gemfields has eyes on the future, says Shetty. “We’re looking into various growth opportunities. We went out to Colombia last year. We started an exploration programme in Ethiopia, where we’re looking for emeralds. In Sri Lanka, we’re looking at sapphires. We’ve also been in Madagascar for eight years, but the political instability doesn’t allow us to do anything.” In Montepuez itself, the brand is working to engage a Mozambican contractor to handle an additional six million tonnes. By 2017, Gemfields hopes, MRM will supply 30 to 40 percent of the world’s rubies.

Currently, Gemfields’ aspirations are being encouraged by consumer demand. “Buyers are really going for the beautiful natural gemstones,” said Vickie Sek, director of jewellery for Christie's Asia, to the South China Morning Post. “Most of the top 10 lots are emeralds, rubies and sapphires.”

Against the backdrop of a market clamouring for rings like the Duchess of Cambridge’s 12 carat Ceylon sapphire, Gemfields’ focus on sustainable coloured stones is more than understandable. Yet only time will tell if rubies and emeralds could ever replace the forever appeal of diamonds, or if they’re just a trend of the day.

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