TAVALITE™: HEAVY METAL ROCK CONCERT

“It’s not natural” might be your first reaction at seeing Tavalite™. The metallic luster and unusual magenta, yellow and peacock colors that emerge as the stone is rotated compares with no other natural gemstone. So in this sense, your reaction is justified. But beneath a thin layer of metallic coating (a few thousandths the thickness of a human hair), there is a natural gemstone: in this case, colorless topaz.

The almost psychedelic stones are by Deposition Sciences Inc. of Santa Rosa, Cal. The gems got a guarded reception when introduced three years ago. “People were suspicious of the high-tech process,” says Lee Pierce of DSI. “Now we are seeing a lot more appreciation for them, especially by large manufacturers. These are truly gemstones of the 21st century.”

The proprietary technology used to produce these colors came hand-in-hand with developments in the electronics industry. Though several other companies are beginning to offer similar services for gemstones, Pierce is circumspect about competition. “Imitation is the most sincere form of flattery,” he says. “As far as we know, our treatment is the only one which entirely treats a stone, and we have a quality advantage in terms of durability, color intensity and clarity.”

Dan Rogers, a scientist for DSI, says the company applies some very thin layers of metal oxides [silicon dioxide and titanium dioxide] to the naturally occurring materials by carefully controlling the layers and thicknesses. Rogers points out that because the gemstones are entirely coated, the way light reflects and refracts inside dictates the perceived body color of the gem. “One of the features of this treatment is that the intensity of color does not depend on the size of the stone,” he says. “Even small gems can have intense colors.”

Reflected colors on the surfaces – which are the most noticeable – are caused by an “optically active interference effect,” much like oil on water. Rogers says the marketable colors his company produces include the trademarked names “blue enchantment,” “sea-fire” and “jealous love,” which is green with magenta overtones. “We are working on a host of other new colors,” says Rogers.

DSI says the treatment is resistant to daily wear, though it cautions against the use of harsh abrasives, cleaners or buffing wheels. Pierce says the gems are not difficult to set, and the company guarantees them against damage during normal use.

Topaz is the gemstone of choice for DSI because of its availability; however, the company says any gem material, including diamond, can be treated succesfully. “We can produce as much Tavalite as the market demands,” says Pierce. “We are in a position to handle hundreds of thousands of carats of topaz per year.”

DSI markets its own tavalite™ gems and has a service providing the treatment for interested dealers. “I have heard that dealers have large quantities of irradiated topaz tied up in vaults. These gems are perfect candidates for the Tavalite™ process.” [Editor’s note: irradiated topaz can also be treated with the oxide coating.] “At the retail level, it gives a retailer a fun option at an affordable price for customers buying on impulse,” adds Pierce, “and it still has quality.”

The gems have had no trouble finding their way into the marketplace. DSI has named authorized dealers, including Golay Buchel, Los Angeles, Cal.; Rio Grande, Albuquerque, N.M.; and Vini Jewels Inc., New York City.

For more information, contact Lee Pierce, Deposition Sciences Inc., 386 Tesconi Court, Santa Rosa, CA 95401; (800) 231-7390, fax (707) 579-0731.

SHANGHAI PLANS WORLD GEM CENTER

Shanghai hopes to become a diamond trading center by building what will be Asia’s largest diamond exchange.

Officials of Shanghai hope the 36,000-sq.-ft. Diamond Exchange Building will lure companies from other diamond centers around the world when it is completed in the year 2000. In fact, they’re offering incentives for diamond manufacturers willing to relocate from Antwerp and Israel.

“These companies have trouble producing small diamonds in their countries,” says Fan Jiong Qi, deputy division chief for Shanghai’s Pudong New Area Administration. “We offer them a facility in which they can work profitably.”

Managing Director Moti Weisbrot says the exchange will be patterned after similar facilities in Israel and will house the official diamond bourse of the People’s Republic of China. It will include a fully integrated shipping and customs area, a diamond exchange floor and a special bonded area in which rough diamonds and colored stones can be imported, polished on-site and exported without duty charges. Actual rents and fees haven’t been set yet.

Tenants also may get tax breaks when trading on the domestic jewelry market. This will provide them with a competitive advantage over other Shanghai-area diamond operations because the bonded status will allow them to avoid China’s costly import duties.

All business will be transacted in U.S. dollars in a special currency account with no restrictions and with full repatriation rights, says Weisbrot.

PRODUCTION OF WHITE SYNTHETICS IN RUSSIA HITS ROADBLOCK

Commercial production of white synthetic diamonds in the joint venture of Chatham Created Gems, San Francisco, Cal., and a Russian company faces a new hurdle. The Russian facility where the synthetics are produced has trouble paying its utility bills, so the government occasionally turns off the electricity, ruining the crystal-growing procedure, says Tom Chatham, president of Chatham Created Gems.

In addition, factions within the government interfere because they still regard production of white synthetics to be a state military secret. The goods produced so far – about 130 carats of white stones – were polished locally but never left Russia, says Chatham. “Someone in the government called their customs people and had us surrender the diamonds before we could leave the country,” he explains.

“The facility once had 6,000 workers and was doing defense-related work,” he says. “The people running it were accustomed to working with government subsidies and free power and didn’t know how to cope when these ended.”

For these reasons, Chatham put his plans for white synthetics on hold until the government and the producer sort things out. He has no idea when that will happen.

Meanwhile, Chatham says he was approached by a consortium in Belarus that manufactures yellow synthetics, which he says are much easier to grow in a laboratory. The nitrogen that creates the yellow color acts as a catalyst for diamond growth. The white diamond synthetics develop much more slowly and often leave highly visible pieces of metallic flux in the stones. “They told me I could buy all the yellows I could take, so I decided this was the way to go for the time being,” he says. He adds that the clarity of the yellows is also much higher.

This year Chatham Created Gems will market the synthetics in a mounted jewelry line featuring princess cuts, from 80 points to 1 carat. Princess cuts allow for more yield, he says, and finished jewelry allows him to get higher margins for all of his synthetic lines. “We’ll be doing a lot more finished product in the future because it’s more profitable,” he explains.

ARGYLE PARTNERS DIVIDED OVER FUTURE

Argyle’s two partners are divided over whether to redevelop the mine underground after 2003.

Ashton Mining is eager to proceed. But John Robinson, Ashton’s managing director, says senior partner RTZ-CRA has reservations about spending A$250 million to A$300 million needed to keep the mine going. RTZ-CRA reportedly wants to be sure the mine can meet very strict cost and profit standards.

Argyle presented a feasibility plan to take the mine underground to Ashton and RTZ-CRA, but a decision had not been made as of JCK’s press time in April. (Argyle’s 1996 production totaled 42 million carats, up 2.1 million carats from the previous year. The increase came from higher production plant throughput and mining richer reserves.)

Ashton also will decide soon whether to develop the Merlin project in Australia’s Northern Territories. Ashton, which owns 32.9% of Merlin, has already moved to acquire full ownership of the other major shareholder,

Australian Diamond Exploration, which owns 44.5%. The Merlin deposit consists of 11 kimberlite pipes, thought not all are proven to be economic. The averagediamond quality is higher than at Argyle. But some analysts question whether the projected 500,000-carat yearly production would be sufficiently profitable to warrant the expense of development.

Argyle’s fortunes took an abrupt downturn after it broke from the De Beers network in June 1996. In fact, Ashton Mining reported a 63% drop in sales during the second half of the year, nearly all of which it attributed to Argyle operations.

Argyle’s second-half revenue totaled A$164 million, compared with A$443 million for the first half. Robinson says figures for the second half are always much lower than for the first half. He did say, however, that Argyle could have done better if its expanded Antwerp sales office had been up and running before the June 30 break from De Beers. “We got away from a standing start, had to get new people and train them, and then move into new premises,” he says in a formal statement. But he reiterates the decision to leave the CSO was “fundamentally correct.”

RAPAPORT CALLS AUCTION ON INTERNET A ‘GOOD FIRST EFFORT’

Martin Rapaport will hold a second diamond Internet auction-tender in his booth at the JCK International Jewelry Show in Las Vegas, Nev., May 30 to June 3.

Rapaport called his March 14-20 auction “good for a first effort” and says the market should be livelier by the time the show opens.

In his first sale, Rapaport offered 94 diamonds ranging from half-caraters to 5 carats, all fine makes and Ideal Cuts with Gemological Institute of America or American Gem Society reports. Rapaport says the Internet auction site carried images of every diamond, and the certificates so prospective buyers could see what they were buying. While much of the bidding was done in person at his New York City office, “the Internet did help open things up to people worldwide.”

Rapaport says he sold 35 of the stones at pretty good prices. “Generally about 18% to 20% below Rapaport,” he adds.Most of the action was on the smaller stones, says Rapaport, who found interest slowing as the size increased. “One reason was this was a cash auction at the slowest time of the year,” he says. “A lot of buyers don’t want to put cash down on big stones this early.”

He says the reserve prices were a bit too high to attract bargain hunters. “Anyone looking for good make diamonds at 35% off list wasn’t going to get them at this sale,” says Rapaport. Bidders were a mix of trade people and retailers from all over the U.S. and Asian centers – including Taiwan and Hong Kong, he says.

The format will be similar at the Las Vegas auction. Rapaport says he will take bids at his booth and over the Internet connection.

BOTSWANA GIVES DE BEERS LEASE

The government of Botswana has granted De Beers a lease for the Tswapong mine, its fourth mine in the country. (The other De Beers mines are Jwaneng, Orapa and Letlhakane.)

The new five-year lease will give De Beers access to five kimberlite pipes at Tswapong, located about 250 miles northeast of Gaborone, Botwana’s capital. The new operation near the Lerala village and close to Botswana’s border with South Africa is expected to employ 30 to 50 people once it starts production in September, a spokesman said.

ARS CLEARED OF WRONGDOING

Russian tax police have dropped charges of illegal currency transactions that had been filed against Almazy Rossii-Sakha, Russia’s biggest diamond producer.

The charges against the Yakutia-based company were one of the major stumbling blocks on the road to signing a rough diamond marketing agreement with De Beers. Tax authorities accused ARS officers of irregularities in tax and currency trading after a special audit at the end of last year and threatened $379 million in fines. However,

ARS said it was permitted to carry out hard currency transactions under the terms of a “secret” decree signed by President Boris Yeltsin.

Regardless of ARS’s contention, tax authorities staged simultaneous combat-style raids on ARS offices in Mirny, Yakutsk and Moscow Jan. 23. Armed, hooded representatives of tax authorities impounded documents from the offices. ARS was allowed to continue operating, and an ARS spokesman said later the tax authorities were unable to uncover any evidence of criminal offenses.

There has been speculation within the government that certain politicians and businessmen wanted to divide ARS into two independent companies: one to mine diamonds and the other to sell them. In addition, many analysts believe the tax charges arose from a power struggle between the provincial government of Sakha, which holds virtually all of Russia’s diamond deposits, and the central government, which seeks greater control over diamond operations. ARS reportedly paid taxes of $698.8 million in 1995, of which $182 million went to the central government. The Sakha government owns a 32% stake in ARS.

BYTCHKOV RESIGNS

Russian press reports indicate Evgeny Bytchkov resigned the presidency of the Russian Diamond Manufacturers Association shortly after assuming the post.

Bytchkov apparently left the diamond industry completely to accept an appointment with the Russian Bank, says Gary Ralfe, managing director of De Beers’ Central Selling Organisation. Bytchkov’s successor is Alexander Shkadov, general director of the Kristall Smolensk diamond cutting plant.

Bytchkov had been a key figure in the Russian diamond industry and was the most vocal opponent of a proposed marketing agreement with De Beers. Until last year, he was chairman of Roskomdragmet – the Russian Federal Committee for Precious Metals and Precious Stones. He also was a confidante of Russian President Boris Yeltsin, having originated from the same region of Russia. But in 1996, he was dismissed and Roskomdragmet was disbanded after it sent tens of millions of dollars worth of rough diamonds to a U.S. company that never paid for them.

Bytchkov established a policy under which foreign diamond manufacturers could set up polishing operations in Russia, using rough from a stockpile that Roskomdragmet administered. De Beers contended many of these joint ventures were little more than fronts to export rough diamonds outside of the CSO contract.

DIAVIK GETS GOOD REPORT

The news from the Diavik Diamond Mine in Canada’s Northwest Territories continues to be favorable, says Canaccord Capital of Winnipeg, a mining stock analyst.

Canaccord predicts an annual yield of 9.7 million carats by 2003. The latest bulk sample from the A-154 South kimberlite pipe totaled 11,739 carats with an average value of $67 per carat, about 13% higher than the average value of the previous sample. The valuing was conducted by six independent diamond traders in Antwerp. Diamonds from the A-418 kimberlite, the other major pipe in the cluster, are valued at an average $64 per carat.

Canaccord believes the A-418 pipe could be on line as early as 2001 and A-154 two years later. The first pipe can yield up to 4.5 million carats yearly once full production begins. The second pipe is expected to deliver some 5.2 million carats yearly, according to Canaccord. Testing is under way down to the 400-meter level in A-154 to determine the grade in deep sections of the deposit. The average grade of both kimberlites is estimated at 4 carats per ton with an estimated life of 16 years.

Meanwhile, limited tests at the A-21 pipe have found a grade of 3.1 carats per ton. A larger-than-expected number of 2-ct. and larger diamonds were discovered in the samples.

The Diavik project is owned 60% by Kennecott and 40% by Aber Resources. The parent company is RTZ-CRA, which recently proposed changing its name to Rio Tinto. RTZ-CRA is also the majority owner of Argyle Diamonds of Australia. RTZ-CRA is the world’s largest mining company with 1996 profits of $1.1 billion on revenue of $8.45 billion.